Starz Q1 Revenues Fall As Distributors Play Hardball On Renewal Terms

The folks at Starz couldn’t have been happy writing this morning’s earnings release. Start with the numbers: The premium cable network company generated Q1 net income of $58.2M, -26.5% vs the period last year, on revenues of $399.3M, -1.4%. Analysts expected revenues to hit $404.5M. And earnings at 47 cents a share missed forecasts for 49 cents. But the explanations had to have been equally painful. The company says revenues are off in part due to the expiration of its distribution deal with Netflix last year. It adds that it also had to renew two distribution deals in Q4 “on less favorable financial terms than the prior affiliation agreements.” On top of that Starz Animation’s Film Roman studio had fewer projects in the pipeline. Although programming costs fell 9.3% to about $146M, other expenses were up including a 21.2% increase in sales and administrative to $69.2M while stock-based compensation was up 181% to $7.3M. On a cheerier note, Starz subscriptions at the end of March were up 1.9% from the end of 2012 to 21.6M while Encore subs were +8.6% to 35.1M. CEO Chris Albrecht says that the subscription growth is a sign of “solid operational performance.” He adds that the company has renewed Da Vinci’s Demons for a second season and is “confident that over time our approach to original programming will deliver strong shareholder value.”